Reference no: EM13576490

For its fiscal year ending October 31, 2014, Douglas Corporation reports the following partial data shown below.

Income before income taxes .......................$550,000
Income tax expense (30% A? $410,000) ............123,000
Income before extraordinary items ................427,000
Extraordinary loss from flood .....................140,000
Net income ..........................................$287,000

The flood loss is considered an extraordinary item. The income tax rate is 30% on all items.

Instructions

(a) Prepare a correct income statement, beginning with income before income taxes.

(b) Explain in memo form why the income statement data are misleading.